Financial Resources Network, Inc. et al v. Brown & Brown, Inc. et al

Filing 72

Magistrate Judge Marianne B. Bowler: ORDER entered. MEMORANDUM AND ORDER RE:MOTION FOR SUMMARY JUDGMENT BY DEFENDANTS AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY AND ZURICH NORTH AMERICA COMPANY (DOCKET ENTRY # 46); is ALLOWED in part and DENI ED in part. MOTION FOR SUMMARY JUDGMENT BY DEFENDANTS BROWN & BROWN OF CALIFORNIA, INC., BROWN & BROWN, INC., AND CALSURANCE (DOCKET ENTRY # 54); is ALLOWED in part and DENIED in part. PLAINTIFFS CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT (DOCKET ENTRY #59) IS denied. The parties shall appear for a status conference at 2:30 p.m. on December 15, 2010, to address the deadlines for fact and expert discovery and dispositive motions. (Feeney, Eileen)

Financial Resources Network, Inc. et al v. Brown & Brown, Inc. et al

Doc. 72

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS FINANCIAL RESOURCES NETWORK, INC., FINANCIAL FAMILY HOLDINGS LLC, ROSALIND HERMAN and GREGG D. CAPLITZ, Plaintiffs, v. BROWN & BROWN, INC., BROWN & BROWN OF CALIFORNIA, INC., AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, ZURICH NORTH AMERICA COMPANY and CALSURANCE, Defendants. MEMORANDUM AND ORDER RE: MOTION FOR SUMMARY JUDGMENT BY DEFENDANTS AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY AND ZURICH NORTH AMERICA COMPANY (DOCKET ENTRY # 46); MOTION FOR SUMMARY JUDGMENT BY DEFENDANTS BROWN & BROWN OF CALIFORNIA, INC., BROWN & BROWN, INC., AND CALSURANCE (DOCKET ENTRY # 54); PLAINTIFFS' CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT (DOCKET ENTRY # 59) November 18, 2010 CIVIL ACTION NO. 09-11315-MBB

BOWLER, U.S.M.J. Pending before this court is a motion for summary judgment on counts II through IX filed by defendants American Guarantee and Liability Insurance Company ("American Guarantee") and Zurich North America Company ("Zurich North"). (Docket Entry # 46).

Adopting the arguments in the American Guarantee and Zurich North summary judgment motion, defendants Brown & Brown, Inc. ("B&B"), Brown & Brown of California, Inc. ("BBC") and Calsurance also

Dockets.Justia.com

move for summary judgment.

(Docket Entry # 54).

Plaintiffs

Financial Resources Network, Inc. ("Financial Resources"), Financial Family Holdings LLC ("FFH"), Rosalind Herman ("Herman") and Gregg D. Caplitz ("Caplitz") (collectively "plaintiffs") filed a cross motion for partial summary judgment seeking a declaration that "plaintiffs' claims are not time barred" and that "defendants were obligated to provide coverage to the plaintiffs" under a Life Insurance Agents Errors & Omissions Liability Policy ("E&O Policy"). (Docket Entry ## 59 & 60).

The claims subject to the alleged coverage under which American Guarantee and Zurich North had a duty to defend and indemnify originate from a November 2004 civil action ("the Indianapolis action") filed in this district by Indianapolis Life Insurance Company ("Indianapolis Life") against Herman, Caplitz, Rudy K. Meiselman, M.D. ("Meiselman") and his wife, Hope E. Meiselman, ("the Meiselmans") and the Financial Resources Network Plan and Trust ("FRN Plan"). A final judgment issued in January

2006 on the claims in the complaint as well as those in a crossclaim filed by Meiselman. The final judgment ordered inter

alia the rescission of life insurance policies on Meiselman and his wife and a return of a $650,297.01 commission previously paid to Caplitz. Count I in this proceeding sets out claims against B&B, BBC and Calsurance for breach of a contract "by estoppel." (Docket

2

Entry # 28, ¶ 53).

Counts II through V consist of claims against

Zurich North and American Guarantee for breach of contract. Respectively, they set out claims for breach of an express contract to defend and indemnify (Count II), breach of an oral contract (Count III), breach of an implied in fact contract (Count IV) and breach of a contract by estoppel (Count V). Count VI includes claims against all defendants for breach of the implied covenant of good faith and fair dealing. Counts VII,

VIII and IX are claims against all defendants for fraud, negligent misrepresentation and violation of section two of Massachusetts General Laws chapter 93A ("chapter 93A").

PROCEDURAL BACKGROUND Plaintiffs filed this action in June 2009 in Massachusetts Superior Court (Suffolk County). (Docket Entry # 6). In August

2009, American Guarantee, Zurich North, B&B, BBC and Calsurance (collectively "defendants") filed a timely notice of removal. Shortly after removal, B&B, BBC and Calsurance filed a motion to dismiss the claims lodged against them in the original complaint pursuant to Rule 9(b), Fed. R. Civ. P., and Rule 12(b)(6), Fed. R. Civ. P. ("Rule 12(b)(6)"). In particular, B&B, BBC and Calsurance moved to dismiss the claims for breach of an oral contract to provide insurance (Count I), breach of an implied in fact contract to provide insurance

3

(Count II), breach of contract by estoppel (Count III) and breach of the implied covenant of good faith and fair dealing (Count VIII) due to the absence of an allegation of a contract. In

addition to asserting the untimeliness of the contract claims, B&B, BBC and Calsurance moved to dismiss the negligent misrepresentation, fraud and chapter 93A claims as untimely and the fraud claim due to the lack of particularity. They also

sought to dismiss the claims brought by plaintiffs, except those asserted by Caplitz, because Caplitz was the only plaintiff seeking the errors and omission insurance at issue. Entry ## 8 & 9). The district judge allowed the motion on counts I and II because plaintiffs had not "alleged an express contract." (Docket Entry # 24, pp. 3-4 & 9). He also dismissed the fraud (Docket

claim without prejudice, allowed plaintiffs leave to file a motion to amend to set out the fraud claim with particularity and otherwise denied the motion. On February 9, 2010, this court allowed a motion to amend and denied a motion for reconsideration. In the latter motion,

B&B, BBC and Calsurance sought reconsideration of the denial of the motion to dismiss the negligent misrepresentation and chapter 93A counts as untimely and the breach of the implied covenant of good faith and fair dealing count as lacking an enforceable contract. In denying reconsideration, this court advised the

4

parties that: Defendants may renew the arguments on summary judgment based upon a more developed factual record and the different legal standard of review that applies to a summary judgment motion as opposed to a motion to dismiss. See McKenzie v. BellSouth Telecommunications, Inc., 219 F.3d 508, 513 (6th Cir. 2000); McAnaney v. Astoria Financial Corp., 2009 WL 3150430, *7 (E.D.N.Y. Sept. 29, 2009); see also Fisher v. Tarinor, 242 F.3d 24, 29 n.5 (1st Cir. 2001). Currently before this court are the summary judgment motions filed by American Guarantee and Zurich North (Docket Entry # 46) and B&B, BBC and Calsurance (Docket Entry # 54) as well as the partial summary judgment motion filed by plaintiffs (Docket entry # 60). After conducting a hearing on June 9, 2010, this court

took the motions under advisement.

STANDARD OF REVIEW Summary judgment is designed "`to pierce the boilerplate of the pleadings and assay the parties' proof in order to determine whether trial is actually required.'" Davila v. Corporacion De

Puerto Rico Para La Difusion Publica, 498 F.3d 9, 12 (1st Cir. 2007). It is appropriate when the summary judgment record shows

"there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law." Civ. P. Rule 56(c), Fed. R.

"A dispute is genuine if the evidence about the fact is

such that a reasonable jury could resolve the point in the favor of the non-moving party." American Steel Erectors, Inc. v. Local

Union No. 7, Int'l Ass'n of Bridge, Structural, Ornamental & 5

Reinforcing Iron Workers, 536 F.3d 68, 75 (1st Cir. 2008).

"A

fact is material if it carries with it the potential to affect the outcome of the suit under the applicable law." are viewed in favor of the non-moving party. Id. Facts

See Noon v. Cross-motions

Staples, Inc., 556 F.3d 20, 23 (1st Cir. 2009).

for summary judgment do not alter the summary judgment standard, but instead simply require a determination of "whether either of the parties deserves judgment as a matter of law on the facts that are not disputed." Adria Int'l Group, Inc., v. Ferré

Development, Inc., 241 F.3d 103, 107 (1st Cir. 2001).

FACTUAL BACKGROUND1 Financial Resources is a Massachusetts corporation that administers and maintains the FRN Plan, a qualified 401(k) pension plan for Financial Resources employees. FFH is the sole

stockholder of Financial Resources. Herman is an officer and a director of Financial Resources. In 2003, Financial Resources hired Caplitz who, among other responsibilities, acted as Indianapolis Life's agent in issuing insurance policies to employees of Financial Resources. 1998 through 2006 and during his employment at Financial Resources, Caplitz "was a contracted agent with Indianapolis Citations to the record are provided primarily only for direct quotations. 6
1

From

Life."

(Docket Entry # 63).

In 2002, Financial Resources hired Meiselman as a technical analyst. As an employee of Financial Resources, Meiselman

elected to participate in the FRN Plan and executed a tax free rollover of his retirement funds into the FRN Plan amounting to $11,242,853.20. Herman and Caplitz used funds in Meiselman's

account to pay for insurance policies on the lives of Meiselman and his wife ("the Meiselman life insurance policies"). Herman

signed the two, July 2003 applications along with Meiselman and his wife with the FRN Plan as the designated owner rather than either of the Meiselmans. commission. As a contracted agent of Indianapolis Life, Caplitz was enrolled in the E&O Policy provided by American Guarantee, a subsidiary of Zurich North, for Indianapolis Life insurance agents from 2001 to July 2004. BBC, a subsidiary of B&B, offered (Docket Caplitz received the aforementioned

the insurance "through Calsurance, a division of BBC." Entry # 63, ¶ 6). Calsurance acknowledged and approved

applications received from Indianapolis Life agents for the policies provided by American Guarantee. Lancer Claims Services,

Inc. ("Lancer"), a division of BBC, provided claims services for the policies. The E&O policy afforded professional liability coverage for life insurance agents such as Caplitz against "[a]ny `Claim'

7

arising out of a negligent act, error or omission of the `Insured' . . . in rendering or failing to render Professional Services." (Docket Entry # 48, Ex. 2, ¶ I(A)(1)). In greater

detail, the relevant language of the E&O policy provides that: The Company shall pay on behalf of the Insured" all sums which the "Insured" shall become legally obligated to pay as "Damages" as a result of: 1. Any "Claim" arising out of a negligent act, error or omission of the "Insured", or any person for whose acts the "Insured" is legally liable, in rendering or failing to render "Professional Services" for others in the conduct of the "Insured's" profession as a licensed Life, Accident and Health Insurance Agent, Broker, General Agent or Manager, Notary Public or Registered Representative, while there is in effect a contract between Named Insured and the insurance company named in Item 1 of the Declarations. (Docket Entry # 48, Ex. 2, ¶ I(A)(1)) (emphasis added). The term "Claim" is a defined term in the policy. It

"mean[s] a written demand received by the `Insured' seeking monetary damages." (Docket Entry # 48, Ex. 2) (emphasis added).

The E&O Policy defines the term "damages" using similar pecuniary language. The definition states that, "`Damages' shall mean the

monetary amounts for which an `Insured' is legally liable, including sums paid as judgments, awards, or settlements . . .." (Docket Entry # 48, Ex. 2) (emphasis added). The definition

additionally states that, "`Damages' does not include: . . . 3. the return or withdrawal of fees, commissions, or brokerage charges; 4. Non-pecuniary or injunctive relief; or 5. Judgments or awards from acts deemed uninsurable by law." 8 (Docket Entry #

48, Ex. 2,

¶ II(D)) (emphasis added). It means

The term "Professional Services" is also defined.

"[t]he sale or servicing of: . . . (c) Employee Benefit Plans . . . including . . . Ordinary Pension or Profit Sharing Plans . . . and (e) `Financial Planning Activities.'" Ex. 2, ¶ II(J)). (Docket Entry # 48,

The term "Financial Planning Activities" meant

"recommendation or preparation of a financial program for a client involving the client's present and anticipated assets and liabilities, including recommendations regarding saving, investments, insurance, anticipated retirement or other employee benefit." (Docket Entry # 48, Ex. 2, ¶ II(J)) (emphasis added).

The term "Insured" under the policy is defined to include: The Named Insured set forth in Item 1 of the Declarations, including: a. All Agents or General Agents of the insurance company named in Item 1 of the Declarations provided they are party to an agent contract with the insurance company named in Item 1 of the Declarations. (Docket Entry # 48, Ex 2, ¶ II(F)). Immediately below the words

"Named Insured" in item one of the declarations page appears the language, "The Career Agents and Personal Producing Agents of AmerUs Life, Indianapolis Life and Bankers Life of New York." (Docket Entry # 48, Ex 2). As a "contracted agent with

Indianapolis Life" (Docket Entry # 63), Caplitz was therefore a named insured within the meaning of the E&O Policy.

9

As set out in section II(F)(3) of the policy,2 the term "Insured" also includes "Any person acting on behalf of the Named Insured who was or is . . . an employee of the Named Insured or Named Insured's business entity, provided such person is not a party to an agent or broker contract with any insurance company, and then only with respect to `Professional Services' provided by the Named Insured." (Docket Entry # 48, Ex. 2, ¶ II(F)(3)).

As with most insurance policies, the E&O Policy contains a number of exclusions. to the case at bar. Exclusions A, E, I, L and T are relevant They read that:

This Policy does not apply to any "Claim": A. arising out of any act, error, or omission of the "Insured" committed with dishonest, fraudulent, criminal, malicious, knowingly wrongful purpose or intent; however, notwithstanding the foregoing, the "Insured" shall be afforded a defense, subject to the terms of this Policy, until the allegations are subsequently proven by a final adjudication. In such event, the "Insured" shall reimburse the Company for all "Defense Costs" incurred by the Company; ... E. made against the "Insured" based upon or arising out of any Pension, Profit Sharing, Health and Welfare or other Employee Benefit Plan or Trust sponsored by the "Insured" as an employer; . . . I. arising out of, or contributed to by, any commingling of, or use of client funds; . . . L. arising out of disputes by or between "Insureds" or the insurance company named in Item 1 of the Declarations . . . or any other insurance company, agent or broker, including but not limited to, disputes concerning commissions, fees,

American Guarantee and Zurich North rely on this section to argue that Meiselman was an insured under the E&O Policy. 10

2

client lists or entitlements; . . . . T. based solely upon a loss alleged to have been sustained through fluctuation in market value of any security; . . .. (Docket Entry # 48, Ex. 2, ¶ VI). The 2002 to 2003 "Policy Year E&O Plan Highlights," issued each year to policy holders, expressly states: For your protection, the policy also includes an "Awareness Provision." This allows you to provide written notice of circumstances that could reasonably be expected to give rise to a claim. Then if a claim subsequently arises out of the described circumstances, it will be considered to be a claim during the Policy Period in which the written notice was received. (Docket Entry # 63, Ex. 2). The policy ended on July 1 of each year. The enrollment

form for the 2004 to 2005 E&O Policy permitted "[a]gents with [e]xpiring [c]overage" to "[e]nroll within 30 days of [e]xpiration." (Docket Entry # 63). From July 2001 until July

2003, Caplitz was enrolled in the E&O Policy and paid the premium annually by credit card. In 2004, Calsurance "changed its (Docket Entry # 63).

policy" to require "payment by check only."

Caplitz attests that on or about July 30, 2004, he "delivered to Calsurance" an enrollment form as well as check number 2018 dated July 29, 2004, in full payment of the premium in order to enroll in the 2004 to 2005 E&O Policy. # 63, ¶ 9). (Docket Entry

Caplitz also avers that he "had no knowledge" and no He

reason to believe that his coverage had not been renewed.

further attests that, "no defendant advised me at the end of the 11

policy year ending July 1, 2004," of a nonrenewal. # 63, ¶ 12).

(Docket Entry

By certified letter dated June 30, 2004, Meiselman voiced his objections and those of his wife to Herman, trustee of the FRN Plan, to the purchase of the life insurance policies including the use of funds from the FRN Plan. The letter

directed Herman, as trustee, to transfer all his assets in the FRN Plan to a third party account. When Herman purportedly

failed to respond, disagreements escalated between Meiselman and Financial Resources, Herman and Caplitz. In what he thought was

in accordance with the Awareness Provision, Caplitz orally reported the disagreements to Lancer on or about August 8, 2004. In response to his telephone call, Caplitz received a letter dated August 19, 2004, from Stephen Casey ("Casey"), Director of Lancer. Casey informed Caplitz that Lancer had been engaged to

handle the Meiselman matter on behalf of American Guarantee. Notably, the letter states, "we would like to advise you that your Policy, issued to Amerus by American Guarantee, is effective for the Policy Period of 07/01/2004 to 07/01/2005." Entry # 63, Ex. C). On October 29, 2004, however, Caplitz received a letter from Cynthia Renner ("Renner"), "Senior Director-Coverage" for "Lancer Claims Service for American Guarantee," stating that Lancer and American Guarantee "have not been able to confirm your enrollment (Docket

12

for the Policy Period July 1, 2004 to July 1, 2005." Entry # 63, Ex. E).

(Docket

The letter requested that Caplitz provide

"proof of payment of premium" and confirmation of a completed renewal form. (Docket Entry # 63, Ex. E). Shortly thereafter on

November 5, 2004, Caplitz faxed a copy of his enrollment form, dated July 30, 2004, and a copy of the premium check. In the

cover sheet, he stated "Please note that the check still has not cleared the account." (Docket Entry # 63, Ex. F).

Calsurance responded to the facsimile on December 2, 2004. The reply facsimile from Stanley R. Rob, Account Executive/Vice President of Calsurance, states, "We have no record of having received either the enrollment form or your check." Entry # 64, Ex. I). (Docket

The facsimile concludes with the "regret (Docket Entry # 63, Ex.

that we cannot be of service to you." I).

Meanwhile, on October 28, 2004, Meiselman filed a lawsuit against Financial Resources, Herman and Caplitz ("Meiselman I") when Herman allegedly failed to respond to Meiselman's request to transfer his funds in the FRN Plan into the third party account. On November 19, 2004, Caplitz executed a release and settlement agreement agreeing to transfer the funds to the third party account. Caplitz forwarded the settlement agreement to Lancer.

On November 23, 2004, Indianapolis Life filed the complaint in the Indianapolis action against the FRN Plan, Herman,

13

identified as trustee of the FRN Plan, Caplitz and the Meiselmans seeking to rescind the Meiselman life insurance policies and a return of the $650,297.01 commission paid to Caplitz. The five

count complaint alleged inter alia intentional and material misrepresentations in the applications for the Meiselman life insurance policies.3 In March 2005, Attorney Wayne Murphy

("Attorney Murphy") filed an answer to the complaint on behalf of Caplitz, Herman, Financial Resources4 and the FRN Plan.5 The

only reasonable assumption to draw is that these parties incurred defense costs as a result of Attorney Murphy's work.6 On January 26, 2006, the district court in the Indianapolis action (the "Indianapolis court") allowed Indianapolis Life's
3

The discussion section sets out the particular counts in the complaint in greater detail. 4 The complaint in the Indianapolis action did not name Financial Resources as a defendant. 5 Attorney Murphy also included in the answer counterclaims brought by Caplitz and Financial Resources against Indianapolis Life. 6 In opposing the summary judgment motion filed by American Guarantee and Zurich North, plaintiffs admit that they "incurred attorney's fees as the result of defendants' refusal to provide coverage" although they did not know that they incurred those fees as the result of defendants' wrongdoing. (Docket Entry # 60, pp. 37-38); see Taylor v. Blakey, 490 F.3d 965, 973 (D.C.Cir. 2007) (noting in parenthetical that "representation in brief may be treated as admission on file" within meaning of Rule 56(c)), vacated and remanded on other grounds, 553 U.S. 880 (2008); Stallard v. U.S., 12 F.3d 489, 496 n.27 (5th Cir. 1994); United States v. One Heckler-Koch Rifle, 629 F.2d 1250, 1253 (7th Cir. 1980); 10A Charles Alan Wright Federal Practice and Procedure § 2723 ("Admissions in the brief of the party opposing the motion may be used in determining that there is no genuine issue as to any material fact, however, since they are functionally equivalent to `admissions on file,' which are expressly mentioned in Rule 56(c)"). 14

motion for summary judgment.

The motion sought summary judgment The decision, rendered

on all five counts in the complaint.

without an opinion, thus allowed the rescission of the Meiselman life insurance policies as well as the return of the $650,297.01 commission paid to Caplitz in procuring the policies. Prior to the decision allowing summary judgment, Meiselman filed a crossclaim against Herman, Caplitz and Financial Resources ("Meiselman crossclaim") on February 9, 2005, on the basis that Herman and Caplitz allegedly used $49,849.69 of Meiselman's retirement funds in the FRN Plan to pay a retainer fee to counsel to defend themselves in Meiselman I. Entry # 48, Ex. 5). (Docket

The crossclaim sought a declaratory judgment

nullifying the release in Meiselman I (Count I) and further alleged breach of an employment contract (Count II), breach of fiduciary duty (Count III), breach of contract (Count IV) and conversion (Count V). (Docket Entry # 48, Ex. 5). Attorney

Murphy did not file an answer to the crossclaim thereby resulting in entries of defaults on June 28, 2005. In August 2005, the

Indianapolis court allowed Meiselman's motion for a default judgment. On January 27, 2006, a final judgment issued in favor of Indianapolis Life rescinding the Meiselman life insurance policies. The judgment also awarded Indianapolis Life

$650,297.01 against Caplitz reflecting the amount of the commission. The Indianapolis court also awarded Meiselman 15

$938,640.14 on the crossclaim against Herman, Caplitz and Financial Resources. The First Circuit affirmed the judgment in November 2006. The opinion reflects and establishes that there is "no dispute that Caplitz acted with the intent to deceive Indianapolis Life by submitting an income verification statement for the Meiselmans, which he intentionally misrepresented to have been prepared by a CPA." Indianapolis Life Ins. Co. v. Herman, 2006

WL 3233837, *1 (1st Cir. Nov. 9, 2006).7

DISCUSSION American Guarantee and Zurich North move for summary judgment on all counts in the first amended complaint except for Count I. Count I is a breach of contract by estoppel claim

against B&B, BBC and Calsurance. American Guarantee and Zurich North seek summary judgment regarding the absence of the duty to defend and indemnify "plaintiffs" under the E&O Policy against the claims in the complaint and in the Meiselman crossclaim in the Indianapolis action. (Docket Entry # 46). Count II of the first amended

complaint, which sets out the breach of the express contractual

The opinion describes the action brought by the Meiselmans as "seeking a declaratory judgment that it properly rescinded a `second to die' policy that it had issued on the lives of the Meiselmans," Indianapolis Life Ins. Co. v. Herman, 2006 WL 3233837, *1 (1st Cir. Nov. 9, 2006), whereas the complaint in the Indianapolis action refers to the two polices. 16

7

duty to defend and indemnify, presents the logical starting place to analyze the existence of coverage. B&B, BBC and Calsurance also move for summary judgment and adopt the arguments made by American Guarantee and Zurich North. (Docket Entry # 54). Plaintiffs bring counts I and VI through IX They reason that if there is no

against B&B, BBC and Calsurance.

coverage under the E&O Policy for the claims in the complaint and the Meiselman crossclaim in the Indianapolis action, their alleged failure or refusal to enroll Caplitz does not give rise to liability. For purposes of the two summary judgment motions

only, defendants assume that the E&O Policy did in fact issue. Plaintiffs, in turn, seek a partial summary judgment that, "1. The defendants were obligated to provide coverage to the

plaintiffs in the Indianapolis action under the policy which they have proffered; [and] 2. barred." The plaintiffs' claims are not time The supporting memorandum

(Docket Entry # 59).

likewise seeks summary judgment on the basis "that (1) the Zurich Defendants were obligated to provide coverage to the plaintiffs in the Indianapolis action under the Zurich Policy [Doc. #48-3] and (2) the plaintiffs' claims are not time barred." Entry # 60). After American Guarantee and Zurich North opposed the motion because of factual issues regarding whether the E&O Policy issued (Docket Entry # 69), however, plaintiffs' sur-reply altered the first request to read "that (1) if it is determined that the 17 (Docket

Zurich Policy [Doc. #48-3] issued, the Zurich Defendants were obligated to provide coverage to the plaintiffs under that policy." (Docket Entry # 71) (emphasis added). The attempt to

change the argument in a surreply is improper for the same reasons, discussed infra, that American Guarantee and Zurich North's attempt to change their argument in the reply brief regarding Count II is improper. See EEOC v. Aldi, Inc., 2008 WL

859249, *5 n.6 (W.D.Pa. March 28, 2008) ("[b]ecause Aldi conceded this element in its opening brief and only challenges it in its reply brief, the Court finds that Aldi waived any challenge to the second prong for purposes of summary judgment"); D'Aiuto v. City of Jersey City, 2007 WL 2306791, *4 n.1 (D.N.J. Aug. 8, 2007) (declining to consider new argument raised in reply brief); Berwind Property Group Inc. v. Environmental Management Group, Inc., 2007 WL 4707647, *6 (D.Mass. Feb. 5, 2007) (not allowing the defendant "to amend the nature of its [summary judgment] motion in a reply brief").

I. 54)

Defendants' Summary Judgment Motions (Docket Entry ## 46 &

Following the lead of American Guarantee and Zurich North, this court addresses the summary judgment arguments in the context of the separate counts in this action beginning with Count II. A. Count II 18

Count II alleges that American Guarantee and Zurich North breached the express contractual duty to defend and indemnify plaintiffs in the E&O Policy. Citing various definitions,

language and exclusions in the E&O Policy, American Guarantee and Zurich North argue that the policy did not provide coverage for the claims in the complaint in the Indianapolis action and the claims in the Meiselman crossclaim. The relevant law is well settled. Examining the duty to

defend involves comparing the third party complaint and the policy provisions. "[T]he question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by matching the third-party complaint with the policy provisions: if the allegations of the complaint are `reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense." Continental Cas. Co. v. Gilbane Bldg. Co., 461 N.E.2d 209, 212 (Mass. 1984); see Vappi & Co., Inc. v. Aetna Cas. & Sur. Co., 204 N.E.2d 273, 276 (Mass. 1965); Magoun v. Liberty Mutual Ins. Co., 195 N.E.2d 514, 517 (Mass. 1964); Liberty Mutual Ins. Co. v. Metropolitan Life Ins. Co., 260 F.3d 54, 64 (1st Cir. 2001) (using similar language); Terrio v. McDonough, 450 N.E.2d 190, 193 (Mass.App.Ct. 1983). In addition, "The scope of an insurer's

duty to defend is `based not only on the facts alleged in the complaint, but also on the facts that are known or readily knowable by the insurer.'" Timpson v. Transamerica Insurance

Co., 669 N.E.2d 1092, 1095 (Mass.App.Ct. 1996) (quoting 19

Desrosiers v. Royal Ins. Co. of America, 468 N.E.2d 625, 627-628 (Mass. 1984)). Furthermore, an insurer's duty to defend is not excused though "some, or even many, of the underlying claims may fall outside the duty of coverage." See Simplex Tech. Inc. v. Liberty "In

Mutual Co., 706 N.E.2d 1135, 1137 (Mass. 1999).

Massachusetts, as elsewhere, an insurer must defend the entire lawsuit if it has a duty to defend any of the underlying counts in the complaint." Liberty Mutual Ins. Co. v. Metropolitan Life

Ins. Co., 260 F.3d at 63; accord Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) ("under Massachusetts law, if an insurer has a duty to defend one count of a complaint, it must defend them all"). An insurer is therefore liable for all

defense costs unless it can show an allocation of such costs between covered and uncovered claims. See Liberty Mutual Ins.

Co. v. Metropolitan Life Ins. Co., 260 F.3d at 63; Liquor Liability Joint Underwriting Ass'n of Massachusetts v. Hermitage Ins. Co., 644 N.E.2d 964, 969 (Mass. 1995) (insurer "should have the burden of allocating the judgment in the O'Brien lawsuit between the covered claim and noncovered claim"). Moreover, if

"the theories relate to a common core of facts, defense costs are often hard to separate between theories" because "the witnesses and documents are often the same" which, in turn, ordinarily imposes "the allocation burden on the insurer who refused to defend a covered theory." Liberty Mutual Ins. Co. v. 20

Metropolitan Life Ins. Co., 260 F.3d at 64. Language in an insurance policy is construed "`according to the fair meaning of the language used, as applied to the subject matter.'" Scottsdale Insurance Co. v. Torres, 561 F.3d 74, 77

(1st Cir. 2009) (quoting Jacobs v. United States Fidelity & Guaranty Co., 627 N.E.2d 463, 464 (Mass. 1994)). Unambiguous

words in an insurance contract are "construed in their usual and ordinary sense." Jacobs v. United States Fidelity & Guaranty

Co., 627 N.E.2d at 464); accord Scottsdale Insurance Co. v. Torres, 561 F.3d at 77 (citing Jacobs, 627 N.E.2d at 464, and quoting same language). Language is ambiguous if it "is Scottsdale Insurance Co.

susceptible to more than one meaning." v. Torres, 561 F.3d at 77.

In the event language is ambiguous,

it is construed against the insurance company and in favor of the insured. See Id. ("[a]mbiguous policy terms are construed in

favor of the insured"); Massamont Insurance Agency, Inc. v. Utica Mutual Life Insurance Company, 448 F.Supp.2d 329, 331 (D.Mass. 2006); see also Preferred Mutual Ins. Co. v. Gamache, 675 N.E.2d 438 (Mass.App.Ct. 1997). The insured "bears the burden of establishing coverage." Finn v. National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, 896 N.E.2d 1272, 1275 (Mass. 2008). The insurer

bears the burden of establishing "the applicability of an exclusion." 1277. 21 Id. Exclusions are "construed narrowly." Id. at

The 2004 to 2005 E&O Policy includes a section describing the policy's coverage for defense and settlement. states: The Company shall have the right and duty to defend any "Claim" against the "Insured" an[sic] "Additional Insured" seeking "Damages" to which this insurance applies even if any of the allegations of the "Claim" are groundless, false or fraudulent. (Docket Entry # 48, Ex. 2, ¶ I(C)). The fair meaning of this It expressly

language applied to the subject matter at hand requires a defense for claims to which the insurance applies even if the allegations are groundless. As reasoned by the Massachusetts Supreme

Judicial Court, "An insurer's duty to defend is broader than it's duty to indemnify." Doe v. Liberty Mut. Ins. Co., 667 N.E.2d Consequently, if an insurer has no duty See United

1149, 1151 (Mass. 1996).

to defend, the insurer has no duty to indemnify.

Nat'l Ins. Co. v. Parish, 717 N.E.2d 1016, 1020 (Mass.App.Ct. 1999). With these principles in mind, this court turns to the duty to defend in the context of the claims in the complaint in the Indianapolis action and thereafter those in the Meiselman crossclaim. 1. (Docket Entry # 28, Ex. 1).

Indianapolis Claims

The claims alleged in the complaint in the Indianapolis action are: (1) rescission due to misrepresentation (Count I);

(2) rescission due to mutual mistake (Count II); (3) breach of contract seeking the return of the commission (Count III); (4) 22

conversion based on Caplitz's retention of the commission (Count IV); and (5) unjust enrichment for retaining the commission (Count V). (Docket Entry # 48, Ex. 4). In essence, Indianapolis

Life sought rescission of the Meiselman life insurance policies and the return of the commission earned by Caplitz in connection with those policies. A. (Docket Entry # 48, Ex. 4).

Counts I and II

Addressing counts I and II, they sought rescission of the Meiselman life insurance policies. Count I against Herman, as

well as the FRN Plan and the Meiselmans, sought rescission based on misrepresentations and an omission in the applications. misrepresentations regarding a change in Meiselman's health status and information in an income verification statement. The The

omission consisted of a failure to disclose an additional life insurance policy. Count II sought rescission based on a mutual

mistake between Indianapolis Life and the FRN Plan because the Meiselmans never wanted the life insurance policies. Entry # 47). The Meiselman life insurance policies contain an incontestability clause which states: This policy has a two year contestable period based upon statements made in the application. We cannot claim your policy is void or deny payment of any benefits after the policy has been inforce[sic] . . . for two years from its Issue Date. (Docket Entry # 63, Ex. H). The language of the clause gives (Docket

Indianapolis Life the ability to void the policies within two 23

years of issuance for any contestable statements made in the applications. In making a necessary finding, the First Circuit

decided that Caplitz prepared an income verification statement of the Meiselmans and misrepresented its preparation by a CPA.8 Because of Caplitz's actual intent to deceive, "Indianapolis Life was not required to show that the misrepresentation increased its risk of loss" and the Indianapolis court therefore "properly awarded summary judgment." Indianapolis Life Ins. Co. v. Herman, Indianapolis Life

2006 WL 3233837, *2 (1st Cir. Nov. 9, 2006).

therefore correctly rescinded the Meiselman life insurance policies based on the misstatements made in the applications within the two year period.

8

As determined by the First Circuit: It is undisputed that Indianapolis Life required the defendants to submit a statement of the Meiselmans' financial condition prepared by a certified public accountant (CPA) as part of the underwriting process. Caplitz provided Indianapolis Life with an income verification statement for the Meiselmans purporting to be from CPA James Goodness. At Caplitz's request, the verification statement was in fact prepared by James Goodness' son, Daniel, who was not a CPA. Caplitz asked Daniel Goodness to place the verification statement on his father's stationery and to sign his father's name so that it would appear to have been prepared by a CPA. There is thus no dispute that Caplitz acted with the intent to deceive Indianapolis Life by submitting an income verification statement for the Meiselmans, which he intentionally misrepresented to have been prepared by a CPA.

Indianapolis Life Ins. Co. v. Herman, 2006 WL 3233837, *1 (1st Cir. Nov. 9, 2006). 24

Matching the allegations to the policy, counts I and II undeniably sought declarations to rescind the Meiselman life insurance policies. covered claim. A claim for rescission is decidedly not a

The E&O Policy covers "any `Claim'" and defines

"claim" as "seeking monetary damages" and "damages" as meaning "monetary amounts." (emphasis added). (Docket Entry # 48, Ex. 2, ¶ II(C)&(D)) Furthermore, the definition of damages (Docket Entry # 48, Ex.

excludes "non-pecuniary . . . relief." 2, ¶ II(D)).

Rescission is a claim for non-pecuniary relief

expressly excluded from the definition of damages in the E&O Policy. Counts I and II seeking rescission are therefore not See 116 Commonwealth Condominium Trust v. Aetna

covered claims.

Cas. & Sur. Co., 742 N.E.2d 76, 78-79 (Mass. 2001) (liability insurance policy did not include equitable action for injunction due to lack of ambiguity in the term "damages" because "[t]his Commonwealth defines damages as `the word which expresses in dollars and cents the injury sustained by the plaintiff'"). The

allegations in counts I and II are not reasonably susceptible of an interpretation that they state or adumbrate a covered claim. As such, they do not impose a duty to defend on American Guarantee or on Zurich North. With respect to Caplitz, exclusion L acts as a separate basis to reject imposing a duty to defend. Exclusion L of the

E&O Policy rejects coverage for claims "arising out of disputes by or between `Insureds' or the insurance company named in Item 1 25

of the Declarations."

(Docket Entry # 48, Ex. 2).

The E&O

Policy defines named insureds in the declarations page as "The Career Agents and Personal Producing Agents of AmerUs Life, Indianapolis Life and Bankers Life of New York." 48, Ex. 2). (Docket Entry #

Indianapolis Life was therefore one of the insurance

companies named in the declarations page within the meaning of exclusion L. Agents of the insurance company named in the

declarations page who "are party to an agent contract with the insurance company" are insureds under the policy. # 48, Ex. 2, ¶ II(F)(1)(a)). (Docket Entry

As a contracted agent with

Indianapolis Life, Caplitz is therefore a named insured under the E&O Policy. Exclusion L therefore eliminates any duty to defend

Caplitz against the claims by Indianapolis Life as to counts I and II. B. Counts III through V

Counts III, IV and V in the complaint in the Indianapolis action, brought only against Caplitz, sought the return of the $650,297.01 commission that Caplitz earned in connection with the sale of the life insurance policies. (Docket Entry 48, Ex. 4).

Uniformly, these counts asserted that Caplitz received the $650,297.01 commission and either refused to refund it, retained and converted it for his own use or retained it unjustly. three counts sought damages in the exact amount of the commission. All

26

The definition of damages in the E&O Policy, however, expressly excludes "the return or withdrawal of fees, commissions or brokerage charges." added). (Docket Entry 48, Ex. 2) (emphasis

As also stated in the E&O Policy, American Guarantee had

a "duty to defend any `Claim' against the `Insured,'" i.e., Caplitz, "seeking damages to which this insurance applies . . .." (Docket Entry # 48, Ex. 2). "[D]amages to which this insurance

applies" does not include damages for the return of a commission. The plain meaning of the policy's definition of damages eviscerates any duty to defend Caplitz against the allegations in counts III, IV and V. Such allegations are not reasonably

susceptible of an interpretation that the claims in counts III through V are covered under the E&O Policy. Furthermore, "An insured does not incur an insurable loss when [he] is merely forced to disgorge money or other property to which [he] is not entitled." Genzyme Corporation v. Federal

Insurance Co., 657 F.Supp.2d 282, 287 (D.Mass. 2009); see also Pacific Ins. Co., Ltd v. Eaton Vance Management, 369 F.3d 584, 591 (1st Cir. 2004). The Indianapolis court on summary judgment

already ruled that, "because the defendants had made an intentional misrepresentation in applying" for the insurance, Indianapolis Life properly rescinded it and "was entitled to a return of the commission." Indianapolis Life Ins. Co. v. Herman,

2006 WL 3233837, *1 (1st Cir. Nov. 9, 2006) (describing lower

27

court's summary judgment ruling). decision. Id. at *2.

The First Circuit affirmed the

In short, the return or retention of the commission Caplitz received for procuring the Meiselman life insurance policies is not covered by the E&O Policy. The facts in the Indianapolis

action and those known or knowable by American Guarantee are not reasonably susceptible of stating or adumbrating a claim covered by the E&O Policy. Accordingly, Caplitz is not entitled to a

defense for counts III, IV and V. In light of the foregoing, none of the counts in the complaint in the Indianapolis action impose a duty to defend Caplitz or any other plaintiff against any of the claims in the complaint in the Indianapolis action.9 Plaintiffs' remaining

arguments relative to the counts in the complaint in the Indianapolis action do not warrant a different finding. 2. Meiselman Crossclaim

Plaintiffs next submit that the E&O Policy required American Guarantee and Zurich North to defend Caplitz against the claims in the Meiselman crossclaim. The introductory paragraph of the

crossclaim depicts that, "It is based upon the FRN Plan Trustee's

In light of the decision below to deny summary judgment as to Count II in the Meiselman crossclaim and the failure of American Guarantee and Zurich North to argue an allocation at this time, the issue remains whether the duty to defend Count II of the crossclaim imposes a duty to defend the counts in the complaint in the Indianapolis action. See generally Liberty Mutual Ins. Co. v. Metropolitan Life Ins. Co., 260 F.3d 63. 28

9

conversion of funds totaling approximately $70,000.00 which should have been rolled over to Meiselman's Individual Retirement Account." (Docket Entry # 48, Ex. 5). As to the Meiselman

crossclaim and as noted previously, the Indianapolis court allowed the motion to enter a default judgment and in January 2006 entered the final judgment against Herman, Caplitz and Financial Resources in favor of Meiselman on all counts in the crossclaim. Count I of the crossclaim sought a declaratory judgment that the release in Meiselman I did not bar the present suit. Entry # 48, Ex. 5). The duty to defend in the E&O Policy, (Docket

however, only covered claims "seeking damages to which this insurance applies." (Docket Entry # 48, Ex. 2, ¶ I(C)) (emphasis added). The policy defines the term claim as a demand for (Docket Entry # 48, Ex. 2, ¶ II(C)). The

"monetary damages."

policy also defines the term damages as meaning "monetary amounts" and as "not includ[ing]" non-pecuniary relief. Entry # 48, Ex. 2, ¶ II(D)). A declaratory judgment is not a claim for monetary damages. It is a claim for non-pecuniary relief in the form of a declaration. In essence, a declaratory judgment claim seeks non(Docket

pecuniary relief that the policy's definition of damages expressly does not include. See 116 Commonwealth Condominium

Trust v. Aetna Cas. & Sur. Co., 742 N.E.2d at 78-79 (liability insurance policy did not include equitable action for injunction 29

due to lack of ambiguity in the term "damages" because "[t]his Commonwealth defines damages as `the word which expresses in dollars and cents the injury sustained by the plaintiff'"). Accordingly, the facts in the crossclaim and those known or knowable by American Guarantee are not reasonably susceptible of an interpretation that they state or adumbrate Count I as covered by the E&O Policy. Count I of the Meiselman crossclaim therefore (Docket Entry # 48, Ex. 2). (1)

does not impose a duty to defend.

Counts II through V of the Meiselman crossclaim allege: breach of Meiselman's employment contract against Financial Resources and Herman (Count II); (2) breach of fiduciary duty

against Herman, Financial Resources and Caplitz (Count III); (3) breach of contract against Herman, Financial Resources and Caplitz (Count IV); and (4) conversion against Herman, Financial Resources and Caplitz (Count V). (Docket Entry # 48, Ex. 5).

Turning to Count II, it alleged a breach of Meiselman's employment contract based upon "the failure of Herman and [Financial Resources] to pay over to [Meiselman] certain portions of his salary earned for services provided, namely, $15,000.00 in excess matching [profit sharing plan] contributions and $8,000.00 in salary for 2004." (Docket Entry # 48, Ex. 5, ¶ 26). Count II

further alleged that Financial Resources and Herman made excess matching fund contributions of $15,000 of Meiselman's salary into the FRN Plan in "breach of the at-will contract of employment between the parties." (Docket Entry # 48, Ex. 5, ¶ 26). 30 Because

the $15,000 amount exceeded the matching contributions, Financial Resources and Herman purportedly should have paid the amount directly to Meiselman as ordinary income. Ex. 5, ¶ 16). (Docket Entry # 48,

The count additionally alleged that Financial

Resources owed Meiselman $8,000 of his salary which "should have been paid into his pension plan tax free." Ex. 5, ¶ 17). In seeking summary judgment relative to the duty to defend Count II, American Guarantee and Zurich North, as well as B&B, BBC and Calsurance by adopting the former's arguments, raise two arguments. First, they maintain that Meiselman's claim for (Docket Entry # 48,

salary as an employee of Financial Resources "is not a claim for Damages arising out of the rendering or failure to render Professional Services by the insureds as those terms are defined in the Policy." (Docket Entry # 47). They submit that the

conduct of not paying Meiselman's salary arises out of the ordinary business operations of Financial Resources. Consequently, the alleged misconduct does not constitute "Professional Services" which, according to defendants, "must involve `the need for specialized learning or training and arise out of those services.' 217." Roe, 412 Mass. at 48, 587 N.E.2d at

(Docket Entry # 47).

It is true that a claim under the E&O Policy must involve "rendering or failing to render `Professional Services' . . .." (Docket Entry # 48, Ex. 2, ¶ I(A)). 31 American Guarantee and

Zurich North's reliance on Roe, however, is misplaced.

Putting

aside the fact that the decision does not contain the precise language quoted, Roe involves the construction of the term "Professional Services" in the context of a dentist's professional liability insurance policy for medical malpractice. "Professional Services" is a defined term in the E&O Policy, which is a professional liability policy for life insurance agents, and it is the language of that policy that controls over the construction of the same term in the somewhat different kind of insurance policy in Roe. In addition, Roe focused on the acts or services being "professional" in the sense of "`[s]omething more than an act flowing from mere employment or vocation.'" Roe, 587 N.E.2d at

217 (quoting Nebraska state court decision interpreting "Professional Services" as used in medical malpractice insurance policy). Here, Herman was the plan administrator of the profit

sharing plan and the policy defines "Professional Services" as including the servicing of such a plan. 2, ¶ II(J)). (Docket Entry # 48, Ex.

Servicing the FRN Plan involved "[s]omething more,"

Roe, 587 N.E.2d at 217, than merely paying or not paying Meiselman his salary because the acts at issue implicated decisions regarding contribution levels and tax free payments into a profit sharing plan. Plaintiffs correctly point out that the E&O Policy defines "Professional Services" to include "[t]he sale or servicing of: . 32

. . (c) Employee Benefit Plans, . . . , including . . . Profit Sharing Plans . . . and, (e) `Financial Planning Activities.'"10 (Docket Entry # 48, Ex. 2, ¶ II(J)(1)(c)&(e)). They reason,

again correctly, that transferring salary into a profit sharing plan such as the FRN Plan falls within the language of "servicing" a "profit sharing plan." The precise allegations in the Meiselman crossclaim relative to Count II state that the additional salary of $8,000 "should have been paid into his pension plan account tax free in accordance with the salary deferral agreement on file with the trustee." The allegations also complain about $15,000 in "excess

matching contributions" made by Financial Resources that was "contributed to" the "401K pension plan" instead of being paid directly to Meiselman as salary. The Meiselman crossclaim

unequivocally denotes the FRN Plan as a "Profit Sharing Plan." (Docket Entry # 48, Ex. 5). Matching these allegations against the fair meaning of the E&O Policy's definition of "Professional Services" as the "servicing of . . . . Employee Benefit Plans, . . . , including . . . Ordinary Pension or Profit Sharing Plans" (Docket Entry # 48,

10

Because the employee benefit plan definition for "Professional Services" (Docket Entry # 48, Ex. 2, ¶ II(J)(1)(c)) serves as a basis to state or adumbrate a covered claim, it is not necessary to address whether the financial planning activities definition for "Professional Services" (Docket Entry # 48, Ex. 2, ¶¶ II(J)(1)(e) & II(L)) defeats American Guarantee and Zurich North's argument that Count II lies outside coverage due to the absence of professional services. 33

Ex. 2, ¶ II(J)) and the coverage provided for "[a]ny `Claim' arising out of a negligent act or error" by Caplitz in "rendering or failing to render Professional Services" (Docket Entry # 48, Ex. 2, ¶ I(A)) (emphasis added) yields a finding that the allegations are reasonably susceptible of stating or adumbrating a covered claim. "Arising out of" professional services means

"`having a connection with'" or "`growing out of'" the failure to render professional services in servicing the FRN Plan. See

Brazas Sporting Arms, Inc. v. American Empire Surplus Lines Ins. Co., 220 F.3d 1, 7 (1st Cir. 2000) (defining "arising out of" as meaning "`growing out of,' . . . or `having connection with'"). In sum, the allegations in Count II for the breach of an employment contract against an employer (Financial Resources) and a plan administrator (Herman) for improperly transferring or not transferring an employee's salary into an ERISA profit sharing plan11 is reasonably susceptible of an interpretation that it falls within the policy's language which covers "[a]ny "`Claim' arising out of" an error in rendering "Professional Services," a term that includes "servicing" a "Profit Sharing Plan." Entry # 48, Ex. 2, ¶¶ I(A)(1) & II(J)(1)(c)). (Docket

Simply put, the

argument that the definition of "Professional Services" in the

11

The Meiselman cross claim, as previously noted, identifies the FRN Plan as a profit sharing plan "promulgated pursuant to the Employee Retirement Income Security Act of 1997 (ERISA), as amended, 29 U.S.C. § 1001, et seq." (Docket Entry # 48, Ex. 5, ¶ 2). 34

E&O Policy falls outside the duty to defend fails.

Hence, a

conclusion that American Guarantee and Zurich North did not have a duty to defend Financial Resources and Herman with respect to Count II of the Meiselman crossclaim lacks merit. Turning to the second argument, American Guarantee and Zurich North, as well as B&B, BBC and Calsurance by adopting this argument, submit there was no duty to defend Count II because Meiselman, as "an employee of the . . . Named Insured's business entity" (Docket Entry # 48, Ex. 2, ¶ II(F)(3)), "would himself have been an insured under the Policy." (Docket Entry # 47).

Exclusion L excludes claims "arising out of disputes by or between `Insureds'" (Docket Entry # 48, Ex. 2, ¶ VI(L)) and would therefore operate as a bar to coverage, according to American Guarantee and Zurich North. Section II(F)(3) and

exclusion L therefore form the basis of the second argument. The allegations of the Meiselman crossclaim identify Meiselman as an employee of Financial Resources who elected to participate in the FRN Plan. (Docket Entry # 48, Ex. 5, ¶ 6).

Thus, Meiselman was an employee of Financial Resources and in the crossclaim he brought a claim against his employer, Financial Resources, as well as against Herman, the company president, for breach of the employment contract due to unpaid and earned salary. Section II(F)(3) of the E&O Policy, the section of the

35

policy cited by American Guarantee and Zurich North,12 limits the definition of an "Insured" to "[a]ny person acting on behalf of the Named Insured who was or is . . . an employee of the Named Insured or Named Insured's business entity, . . . and then only with respect to `Professional Services' provided by the Named Insured." added). (Docket Entry # 48, Ex. 2, ¶ II(F)(3)) (emphasis Thus, for Meiselman to be an "insured" under section

II(F)(3), the section requires that, in addition to being an employee of the insured or the insured's business, he must act "on behalf of the Named Insured . . . and then only with respect to `Professional Services' provided by the Named Insured." (Docket Entry # 48, Ex. 2, ¶ II(F)(3)). Assuming that Financial Resources or Herman was the named insured under section II(F)(3), the qualifying language places Meiselman outside the realm of section II(F)(3)'s definition of an insured. It is true that the allegations of Count II support

a finding that Meiselman was an employee of Financial Resources or Herman thus matching the language in section II(F)(3)'s definition of an insured as "an employee of the Named Insured or Named Insured's business entity."
12

(Docket Entry # 48, Ex. 2, ¶

With respect to Count II of the Meiselman crossclaim, American Guarantee and Zurich North do not cite or rely on section II(F)(2) to argue that Financial Resources was a named insured under this section. They simply argue that Meiselman was an employee of Financial Resources and thus would have been an insured under the E&O Policy as the "`employee of the Named Insured or the Insured's business entity'" under section II(F)(3). This court declines to raise the argument sua sponte. 36

II(F)(3)).

The allegations of Count II, however, do not match

the definition of an insured in section II(F)(3) as a person "acting on behalf" of Financial Resources or Herman in the context of their providing professional services in servicing the FRN Plan, an ERISA profit sharing plan, in making the $15,000 transfer of excess matching contributions or in failing to pay the $8,000 portion of Meiselman's salary into the FRN Plan tax free. In fact, as the allegations in the crossclaim indicate,

Meiselman, a technical analyst, did not take part in the transactions let alone render professional services on behalf of Financial Resources as an employee. Indeed, Meiselman acted on

his own behalf and against the interest of Financial Resources by objecting to Herman's and/or Financial Resources' actions in making or failing to make the transfers into the plan once Meiselman discovered them after the fact by virtue of an outside audit. (Docket Entry # 48, Ex. 5, ¶¶ 14 & 16).

The same finding applies in the event Caplitz is a named insured.13 First, the allegations of the crossclaim do not

denote Meiselman as an employee of Caplitz's or Caplitz's business entity with respect to the professional services provided by Caplitz, to wit, servicing an employee benefit plan or profit sharing plan. of Caplitz. Second, Meiselman did not act on behalf

Rather, he objected to the transfer or the failure

13

As noted, Meiselman did not bring Count II against Caplitz. 37

to transfer once he discovered the conduct due to an outside audit. Thus, even assuming Meiselman was "an employee of the Named Insured or Named Insured's business entity" under section II(F)(3), the allegations in Count II of the crossclaim are not reasonably susceptible of an interpretation that Meiselman was acting "on behalf of" Financial Resources or Herman (or Caplitz) within the meaning of section II(F)(3). insured under this section of the policy. Hence, he was not an The exclusion barring

claims arising out of disputes by and between insureds (Docket Entry # 48, Ex. 2, ¶ VI(L)) therefore does not apply. no other argument specific to Count II of the Meiselman crossclaim,14 American Guarantee and Zurich North are not entitled to summary judgment on Count II of the first amended complaint insofar as it sets out the claim that they breached the duty to defend and indemnify vis-à-vis Count II of the Meiselman crossclaim. Positing

14

It is also not appropriate to address any argument not raised initially in the supporting memoranda. See EEOC v. Aldi, Inc., 2008 WL 859249, *5 n.6 (W.D.Pa. March 28, 2008) ("[b]ecause Aldi conceded this element in its opening brief and only challenges it in its reply brief, the Court finds that Aldi waived any challenge to the second prong for purposes of summary judgment"); D'Aiuto v. City of Jersey City, 2007 WL 2306791, *4 n.1 (D.N.J. Aug. 8, 2007); Berwind Property Group Inc. v. Environmental Management Group, Inc., 2007 WL 4707647, *6 (D.Mass. Feb. 5, 2007). This court also notes that the crossclaim identifies Caplitz as "an undisclosed principal of [Financial Resources], who exercises control over its operations" (Docket Entry # 48, Ex. 5, ¶ 4). 38

The foregoing finding on Count II of the Meiselman crossclaim warrants a denial of summary judgment as to the coverage arguments involving the remaining counts in the Meiselman crossclaim. As previously explained, "an insurer must

defend the entire lawsuit if it has a duty to defend any of the underlying counts in the complaint." Liberty Mutual Insurance v. In particular, it

Metropolitan Life Insurance, 260 F.3d at 63.

is not necessary to address the remaining arguments posed by American Guarantee and Zurich North regarding whether the allegations in counts III and IV are reasonably susceptible of an interpretation that they state or adumbrate a claim covered under the E&O Policy.15 As a final argument relative to summary judgment on Count II of the first amended complaint with respect to the Meiselman crossclaim, American Guarantee and Zurich North point out, correctly, that FFH was not a defendant named in the Meiselman crossclaim or even in the complaint in the Indianapolis action. Because there was no claim lodged against FFH, American Guarantee and Zurich North correctly posit there was no duty to defend or indemnify FFH. Plaintiffs unsuccessfully attempt to avoid a finding of no duty to defend FFH on the basis of FFH as an insured under

15

In the alterative, American Guarantee and Zurich North also omit any extended discussion targeted to Count V of the Meiselman crossclaim thereby waiving the issue for purposes of the present motion. 39

section II(F)(3) and the policy's highlights.

First, section

II(F)(3) applies to "[a]ny person" as opposed to a limited liability company. Second, it is true that Caplitz, as a It is also true that the

contracting agent, was a named insured.

crossclaim alleges that Caplitz exercised control over all of the operations of Financial Resources. ¶4). (Docket Entry # 48, Ex. 5,

The crossclaim, however, does not refer or identify FFH.

Even assuming that FFH's identify as the sole stockholder of Financial Resources was a fact "`known or readily knowable the insurer,'" Timpson v. Transamerica Insurance Co., 669 N.E.2d at 1095, FFH's role is not identified and the factual allegations do not evidence that its role was readily knowable relative to the misconduct regarding the estimated $70,000 funds set out in the allegations in the Meiselman crossclaim. In sum, Count II in the first amended complaint alleging that American Guarantee and Zurich North breached the express contractual duty to defend and indemnify Caplitz, Financial Resources and Herman is not subject to summary judgment in favor of American Guarantee and Zurich North. to summary judgment with respect to FFH. The foregoing finding does not, however, inevitably lead to an allowance of plaintiffs' summary judgment motion. As It is, however, subject

explained infra, genuine issues of material facts relative to the issuance of the E&O Policy preclude summary judgment on plaintiff's request regarding the obligation to provide coverage. 40

B.

Count III American Guarantee and Zurich North move for summary

judgment on Count III because, although "possible to have an oral contract for insurance," the factual allegations in the first amended complaint make clear that "the parties never intended an oral contract" of insurance. (Docket Entry # 47). American

Guarantee and Zurich North submit that there was either coverage under the express E&O Policy because Caplitz delivered the premium check and enrollment form to Calsurance or there was no insurance because, absent such delivery, "plaintiffs simply are not insureds." (Docket Entry # 47). Plaintiffs assert it is a

question of fact for the jury. American Guarantee and Zurich North correctly concede it is possible to have an oral contract for insurance. See Cunningham

v. Connecticut Fire Ins. Co., 86 N.E. 787, 788 (Mass. 1909) ("nor can it be argued that there may not be a valid contract of insurance resting only in parol"). Commentators agree. See 3D

Steven Plitt, Daniel Maldonado and Joshua Rogers Couch on Insurance § 29:24 (3d ed. 2005) ("right to make a renewal by oral agreement exists even though the policy stipulates that this shall not be done"); see also 1 Jeffrey Thomas and Francis Mootz, III New Appleman on Insurance Law § 3:02 (2009) ("[o]ral contracts of insurance are enforceable . . . `[e]ven `permanent' contracts of insurance can be oral'"). 41 The essential terms of an

oral contract for insurance may be implied if not expressly stated based upon the parties' "prior dealings and contracts between the parties" or industry custom and practice. 1 Jeffrey

Thomas and Francis Mootz, III New Appleman on Insurance Law § 3:02 (2009). The Cunningham decision, relied upon by American Guarantee and Zurich North to establish the correctness of their position, is distinguishable on its facts. In Cunningham, which did not

involve the renewal of an existing policy, "Nothing was said as to the companies by which the policies should be written, as to the amount to be assumed by each company, as to the premium, nor as to the term of the policies." Ins. Co., 86 N.E. at 788. Cunningham v. Connecticut Fire

In contrast, the case at bar involves

inter alia a prior course of dealing between the parties, an attempt to renew a preexisting policy which presents factual issues for the jury as to its success and the August 19, 2004 letter from Lancer advising Caplitz that "your policy, issued to Amerus by American Guarantee, is effective for the Policy Period of 07/01/2004 to 07/01/2005." (Docket Entry # 63, Ex. C).

Accordingly, the existence of a meeting of the minds on the essential elements of an oral contract for insurance given the record before this court presents an issue of fact for the jury. See generally Salem Laundry Co. v. New England Teamsters and Trucking Industry Pension Fund, 829 F.2d 278, 280 (1st Cir. 1987) ("existence of a prior oral contract depended on the intentions 42

of" the parties and "determining that intention involves considering the credibility of witnesses, weighing competing, plausible inferences that can be drawn from events and documents"). Based on the arguments presented, Count III is not

subject to summary judgment. C. Count IV American Guarantee and Zurich North next challenge the implied in fact contract claim in Count IV because "plaintiffs" never "provided any benefit to . . . defendants." # 47). (Docket Entry

In addition and similar to their argument on Count III,

they maintain that plaintiffs either have a breach of contract claim based upon an express contract or they have no claim. For similar reasons set out in the preceding section, the latter argument is unavailing. The existence of an agreement

renewing the policy may be implied as long as all elements necessary to form a contract are present. See 3D Steven Plitt, 29:12 &

Daniel Maldonado and Joshua Rogers Couch on Insurance §§ 29.14 (3d ed. 2005) (to form renewal policy "all elements"

necessary to form "contract of insurance . . . must be satisfied" although "missing terms of what purports to be a contract to renew may in some cases be implied"); see, e.g., Campbell v. First American Title Insurance Co., 644 F.Supp.2d 126, 136 (D.Me. 2009) (discussing implied in fact contract for title insurance albeit applying Maine law). The presence of the count for breach

of an express contract does not foreclose liability for breach of 43

an implied in fact contract which may have more generous terms relative to the delivery of the enrollment form and the premium check. The existence of such an implied in fact contract

presents a factual dispute properly addressed in this instance by a jury. Summary judgment on Count IV on the basis of this

argument is not appropriate.16 With respect to the former argument, American Guarantee and Zurich North maintain there was no benefit and thus no consideration because they did not cash the